Aurelia Butler

Turkey’s finance minister has called for patience as his new cadre of technocrats try to reverse years of economic mismanagement and restore investor confidence in the country’s battered economy. In his first interview with international media since his appointment in June, Mehmet Şimşek said he was seeking to “rebalance the economy and soften domestic demand”, after years of unconventional economic policies pursued at the behest of Turkey’s president Recep Tayyip Erdoğan. Şimşek said the president had thrown his “support and commitment” behind a policy U-turn that had seen interest rates rise more than 20 percentage points since the May general elections. “We’re on the right track. There is strong evidence confidence is returning. But we need to be patient, it’s still challenging,” Şimşek told the Financial Times. Turkey’s $900bn economy has faced years of tumult after Erdoğan pressured successive finance ministers and central bank governors to make decisions that sapped foreign exchange reserves, sent foreign capital fleeing and ignited runaway inflation.However, the president shook up his economic management team following the election, which he ultimately won after the tightest contest in his two decades in power. Şimşek was appointed to lead a broad overhaul of policies, which had for years hinged on Erdoğan’s insistence that high interest rates cause, rather than cure, severe inflation.“We have already taken dramatic measures,” Şimşek said from his office in Turkey’s capital Ankara. Şimşek, a former Merrill Lynch economist who has recently returned from a New York trip to woo fund managers, said policies would focus on cooling inflation, rebuilding the country’s depleted foreign currency reserves and reducing its yawning current account deficit.Higher exports and investment would be key to sustaining growth, Şimşek said, adding that Turkey would need to become less reliant on consumer spending, which was stoking inflation. While Erdoğan has publicly embraced the new policies, many investors and analysts remain sceptical about how far the president will let his new economic team go, with key elections in major cities including Istanbul and Ankara looming early next year.Inflation, now close to 60 per cent, remains extremely high and is not expected to fall into single digits until 2026. Most analysts think new central bank governor Hafize Gaye Erkan will need to raise rates much higher to contain price pressures, setting up a potential clash with the president and raising the possibility that the former Goldman Sachs banker could find herself the latest policymaker to be sacked. Şimşek himself abruptly left a senior economic post in Erdoğan’s government in 2018 after the president appointed his son-in-law as finance minister.While inflation would remain in a “transitional phase” until the middle of next year, Şimşek said financial conditions were already tighter than what the central bank policy rate alone suggested because of other steps to tighten policy. He pointed to a series of measures that are aimed at slowing growth in lending to consumers and businesses, as well as increases in petrol and VAT taxes. “To reset inflation expectations, you need trust, that is the key,” he said.The government has allowed the lira to tumble 24 per cent since the start of June as it curtailed a costly attempt to support the currency.Turkey would also seek to slowly unwind the $123bn savings scheme in which depositors were compensated at the government’s expense when the lira depreciated against foreign currencies such as the dollar and euro, Şimşek said. The programme, which was launched in late 2021 as part of an effort to prop up the lira, is seen by analysts and economists as a serious risk to Turkey’s public finances since it links them more tightly to the performance of the lira.There are already some indications that the new economic programme is beginning to bear fruit. Gross foreign currency reserves, excluding gold, have risen to about $73bn, from less than $50bn in May, central bank data shows.Protection against a Turkish debt default, using tools known as credit default swaps, has become much cheaper since June. Turkish companies are also regaining access to international bond markets: home appliance maker Arçelik last week became the first non-financial corporate issuer to sell a dollar bond since January 2022, according to Dealogic data.“As we make progress, the ability of companies and banks to tap international capital markets will improve — and that is key. Once we’re there, our job will be easier,” Şimşek said.Şimşek also said building more constructive relations with western countries and Gulf neighbours would help boost the economy. The United Arab Emirates and Turkey, which have been mending frayed ties in recent months, signed $50bn in investment and financing agreements in July, although some commitments may take years to pan out since they rely on mergers and acquisitions.A presentation Şimşek gave during his trip to New York last week also listed Turkey’s approval of Sweden’s accession to Nato as a key selling point, according to a banker who was present at the conference. While Erdoğan has said he supports Sweden’s accession to the military alliance, Turkey’s parliament, which is controlled by a coalition led by the president’s political party, still needs to approve it. Şimşek said the finance ministry would welcome progress with the EU, especially on upgrading the customs union and visa liberalisation, in addition to co-operation on security migration and energy.“Turkey is in the process of pulling out of a geopolitical recession,” he added. More

TOKYO (Reuters) -Bank of Japan policymakers agreed on the need to maintain ultra-loose monetary settings but were divided on how soon the central bank could end negative interest rates, minutes of its July meeting showed on Wednesday.The nine board members also diverged in their views on whether companies would keep hiking wages next year, the minutes showed, highlighting uncertainty on how quickly the BOJ could begin phasing out its massive stimulus programme.One member said there was “still a significantly long way to go” before the BOJ can revise its negative interest rate policy, the minutes showed.Another member, however, said achievement of the BOJ’s 2% inflation target had “clearly come in sight,” adding that it might be possible to assess whether the target has been met “around January through March 2024,” the minutes showed.Many members agreed the central bank must keep interest rates ultra-low for now as stable, sustainable achievement of its 2% target was not yet in sight, the minutes showed.At the July meeting, the BOJ maintained its easy policy settings but took steps to allow long-term borrowing costs to rise more freely in line with increasing inflation and economic growth.While Governor Kazuo Ueda dismissed the view the July action was a prelude to a future exit from its current policy, many market players now expect the BOJ to begin phasing out its massive stimulus programme later this year or in 2024.Ueda has said the BOJ has no pre-set idea on what order it will dismantle yield curve control (YCC), a policy that guides short-term interest rates at -0.1% and caps the 10-year bond yield around 0%.The board members agreed in July that it was important to check whether wages will continue to rise next year and beyond, to project the outlook for inflation, the minutes showed.One member said inflation could overshoot expectations as a tight job market prod firms to hike pay. Another said wage and price growth could keep accelerating “at a pace unseen in the past,” warning that Japan could face the kind of sharp inflation seen in the United States and Europe, the minutes showed.A few members said the pace of growth in service prices, seen as key to whether inflationary pressure will spread to broader sectors of the economy, was accelerating.Others, however, were more cautious about the price outlook.”Many small and medium-sized firms complain that they are struggling to pass on higher costs. Wage growth could lose momentum ahead,” one member was quoted as saying.”Goods prices are rising sharply. But rises in labour unit costs and unit profits have been limited, suggesting that recent inflation was driven mostly by higher import costs,” another member was quoted as saying.Japan’s core inflation hit 3.1% in August, staying above the BOJ’s 2% target for a 17th straight month, as more firms hike prices to pass on rising raw material costs to households.Companies also offered wage hikes unseen in three decades this year. But the BOJ has maintained its dovish guidance on the view a premature exit from ultra-loose policy could hurt a fragile recovery, and push Japan back into economic stagnation. More

SINGAPORE (Reuters) – The dollar traded near a 10-month high against its major peers on Wednesday as Treasury yields stayed elevated on the prospect of higher-for-longer U.S. rates, while the yen stumbled towards a closely-watched intervention zone.Sterling slid to a fresh six-month low of $1.2145 in early Asia trade, coming under pressure against a stronger greenback. It looked set for a quarterly decline of more than 4%, its worst in a year.The U.S. dollar index last stood at 106.20, having peaked at a 10-month high of 106.26 in the previous session, while the euro languished near Tuesday’s six-month low and last bought $1.0569.”The U.S. dollar is stickier to the upside than the downside,” said Tina Teng, market analyst at CMC Markets (LON:CMCX).”It’s (been) a shock for markets since last week because the Federal Reserve’s rhetoric was more hawkish than expected … I think it’s more likely they would hike rates for one more time.”Fed officials have in recent days flagged the possibility that the central bank would need to raise interest rates further, after it kept rates steady last week but stiffened its hawkish monetary policy stance.That has sent U.S. Treasury yields scaling multi-year highs as money markets adjust their expectations of where U.S. rates could peak, and for monetary conditions to remain tighter for longer than initially thought.The benchmark 10-year yield was last at 4.5254%, after hitting a 16-year high of 4.5660% in the previous session. The two-year yield stood at 5.0582%.The elevated U.S. yields have spelt trouble for the yen, which edged marginally higher to 149.01 per dollar, after having slipped to a 11-month low of 149.185 on Tuesday.The dollar/yen pair tends to be extremely sensitive to changes in long-term U.S. Treasury yields, particularly on the 10-year front.The yen’s slow-but-steady decline to the psychological level of 150 per dollar has kept traders on high alert for any signs of intervention from Japanese authorities, as officials ramp up their rhetoric against the sliding currency.The 150 zone is seen by financial markets as a red line that would spur Japanese authorities to intervene, like they did last year.”The fundamental upside pressure (to dollar/yen) from bond yields is simply too great to ignore,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.”Even if there were intervention, it won’t drive dollar/yen down permanently unless bond yields start to retreat in earnest too.”Elsewhere, the Aussie fell 0.04% to $0.6395, ahead of Australian inflation data due later on Wednesday.The New Zealand dollar rose 0.06% to $0.5948. More

Dimon referenced the Federal Reserve’s benchmark rate, which has remained unchanged at 5.25%-5.5% since late July. He warned that a jump to a 7% interest rate could potentially trigger stagflation, a situation characterized by slow economic growth and high unemployment coupled with rising prices.The CEO acknowledged the Federal Reserve’s anti-inflation efforts but expressed apprehensions about reliance on short-term fiscal and monetary stimuli, likening it to a “sugar high”. He underscored the risks posed by geopolitical strife in Ukraine and Europe, as well as energy issues involving oil and gas.Dimon’s caution comes amidst a period of economic uncertainty, with concerns over the potential for a soft economic landing. The CEO highlighted the need for careful management of these challenges to avoid exacerbating financial stress within the system.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

WASHINGTON (Reuters) – The U.S. Senate on Tuesday took a step forward on a bipartisan bill meant to stop the government from shutting down in just five days, while the House sought to push ahead with a conflicting measure backed only by Republicans. The Senate voted 77-19 to begin debate on a measure that would fund the government through Nov. 17, and includes around $6 billion for domestic disaster responses and another roughly $6 billion in aid for Ukraine. The Republican-controlled House of Representatives, however, planned to push along with its own partisan approach that was unlikely to win support in the Democratic-majority Senate.The House took a procedural vote to move ahead on four spending bills that reflect conservative priorities and stand no chance of becoming law. Even if enacted, the measures fund only a portion of the government and would not avert a shutdown. The split between the two chambers suggests the federal government is increasingly likely to enter its fourth shutdown in a decade on Sunday, a pattern of partisan gridlock that has begun to darken Wall Street’s view of U.S. government credit.Senate Majority Leader Chuck Schumer, a Democrat, and Senate Republican Leader Mitch McConnell worked in tandem to win passage of a bipartisan short-term extension of federal funding at current levels. House Speaker Kevin McCarthy on Tuesday told reporters he would seek approval from his splintered Republicans on a bill that also would temporarily fund the government. But he intends to attach tough border and immigration restrictions that are unlikely to win support from enough Democrats in the House or Senate to become law. Democratic President Joe Biden and McCarthy had aimed to head off a shutdown this year when they agreed in May, at the end of a standoff over the federal debt ceiling, to discretionary spending of $1.59 trillion for the fiscal year beginning Oct. 1.The White House on Tuesday urged Republicans to honor that deal.”House Republicans should join the Senate in doing their job, stop playing political games with peoples’ lives, and abide by the bipartisan deal two-thirds of them voted for in May,” said Press Secretary Karine Jean-Pierre in a statement.But hardliners to the right of McCarthy have rejected that deal, demanding another $120 billion in cuts. McCarthy’s measure would restart construction of the U.S.-Mexico border wall, a signature policy of former President Donald Trump, and tighten immigration policies. Critics have said it would effectively put an end to U.S. asylum for immigrants.’SHUTDOWNS ARE BAD NEWS’McCarthy called on the Biden and congressional Democrats to reconsider their opposition. The top Senate Republican pleaded with his House counterpart to embrace the Senate bill.”Government shutdowns are bad news, whichever way you’d look at it,” McConnell said.McCarthy countered: “Let’s do something on the border, keep the government open and show this nation that we can do it right, and solve the rest of our problems as we go.”Hundreds of thousands of federal workers will be furloughed and a wide range of services, from economic data releases to nutrition benefits, will be suspended beginning on Sunday if the two sides do not reach agreement.The standoff has caused concern at credit rating agency Moody’s (NYSE:MCO), though it is unclear whether it will hurt U.S. creditworthiness, as past shutdowns have not had a significant impact on the world’s largest economy.Trump, the front-runner for the 2024 Republican nomination, has cheered on the shutdown talk.The cuts that hardliners are pushing for only account for a fraction of the total U.S. budget, which will come to $6.4 trillion for this fiscal year. Lawmakers are not considering cuts to popular benefit programs like Social Security and Medicare, which are projected to grow dramatically as the population ages. Congress has shut down the government 14 times since 1981, though most of those funding gaps have lasted only a day or two. More

WASHINGTON (Reuters) – Reforming the World Bank’s approach to risk could unlock nearly $190 billion in additional urgently needed lending for developing countries without jeopardizing its AAA credit rating, a study commissioned by the Rockefeller Institute found.The study, carried out by international finance analytics firm Risk Control, found the bank’s two main lending arms, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), have “significant headroom” to boost lending.Rockefeller hired Risk Control to review and quantify key recommendations made in 2022 by an independent Group of 20 panel, which said easing the bank’s strict capital adequacy framework could free up hundreds of billions in additional lending to combat climate change and advance development.The report, to be published early Wednesday, comes as the United States, China and other top World Bank shareholders prepare to meet in Marrakech, Morocco to review and advance initial reforms already underway at the bank.The study said the IBRD could boost lending by $162 billion over a decade before experiencing any downgrade from the global credit rating agencies, while IDA, which lends to the poorest countries, could boost its lending by $21 billion to $27 billion.In fiscal 2023, which ended June 30, IBRD made net new lending commitments of $38.6 billion, while IDA committed $34.2 billion. It said the two lending arms could boost lending to nearly $900 billion if the rating agencies changed their processes to reflect the “unique status of the development institutions” and modified the allowance they make for “callable capital,” commitments by shareholders to supply additional resources in the event of severe financial problems.The bank has already increased its leverage ratio to squeeze out an additional $50 billion in lending over a decade, but World Bank President Ajay Banga on Tuesday said the bank could potentially double that amount with international contributions.Eric Pelofsky, vice president at the Rockefeller Foundation, said Risk Control conducted a math-based and transparent analysis that confirmed additional lending capacity was possible, even beyond the levels mapped out to date.“This is the math, absolutely as detailed and transparent as you could possibly get, that says there’s more room,” he said. “It very clearly says that there are actions that can be done now while we consider other more long-term reforms to the bank.”Some experts argue that developing and emerging economies need $2.4 trillion per year to meet global climate challenges.“We need this because the developing world is pitching off a cliff in terms of debt, available climate finance, development needs,” Pelofsky said. “And from a geopolitical standpoint, the Bank, the Fund, the regional development banks are infinitely more transparent than some of the obvious alternatives.”The Biden administration is pushing the World Bank as a “credible alternative” to China’s overseas lending, which U.S. officials say is often not transparent and often uses collateralized loans that pose risks to countries later. More

Holzmann cited wage negotiations and rising oil prices as factors influencing the ECB’s stance. He also referenced the bank’s pledge to sustain high borrowing costs in an effort to manage inflation. This comes amid ongoing policy debates over further rate increases beyond 4% during what is being termed as the ECB’s historic monetary tightening phase.The impact of these rate hikes on inflation will be revealed with the release of September data. A significant slowdown in Germany’s economy is expected, which will likely influence future discussions regarding borrowing costs and monetary policy.Holzmann acknowledged ECB President Christine Lagarde’s commitment to maintaining high borrowing costs, despite the economic uncertainty. He also touched upon the Asset Purchase Programme (APP), discussing potential asset sales within the program.In addition to this, Holzmann expressed optimism about potential growth surprises from China and voiced his support for discussions on ending reinvestment in the pandemic portfolio. He also underlined the role played by Eurostat, the statistical office of the European Union, in these economic considerations.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More